UBS tips IPO pipeline to grow and M&A activity to rise

UBS denies the disappointing debut from Nine Entertainment – an IPO it was joint-lead manager on – bodes badly for the IPO outlook in 2014.
Photo: Nine

by
Sally Rose

The poor sharemarket performance of newly listed
Pact Group
,
Nine Entertainment
and
Dick Smith
is not likely to dampen demand for floats next year, with investment bank
UBS
tipping the initial public offering pipeline to grow while merger and acquisitions activity also increases.

After a bumper fourth quarter, the local equity capital market is set to record a total volume of around $24 billion in 2013. That is an increase of more than 15 per cent on 2012, but still relatively light compared to the decade average of approximately $40 billion per year.

“Secondary block trades accounted for a significant amount of the total volume of ECM activity in the first half of 2013, whereas IPO activity has been the dominant theme in the second half," UBS Australia co-head of capital markets
Dane FitzGibbon
said.

“On the back of that issue trading well the subsequent IPOs in the fourth quarter were met with a wall of liquidity," he said.
Virtus Health
is currently trading nearly 50 per cent above its issue price.

“We have seen very strong investor support for growth businesses, particularly where the investment case offers a unique exposure that is hard to get through existing listed companies," Mr Sleijpen said.

However, UBS denies the disappointing debut from Nine Entertainment – an IPO it was joint-lead manager on – bodes badly for the IPO outlook in 2014.
Nine Network
is currently trading about 6 per cent lower since listing earlier this month, slightly below the average return from the index over the same period.

Looking forward, UBS expects ECM volumes to increase in 2014 supported by a continued pipeline of secondary block trades and IPO activity, plus an expected increase in M&A funding requirements.

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According to estimates prepared by UBS, the value of Australian M&A deals announced in 2013 will total about $90 billion. The investment house is expecting 2014 to be even busier, but not back to levels seen in the bumper periods from 2006 - 2007 or 2010 -2011: “Activity in the range of $100 billion to $125 billion would be a good outcome in 2014," UBS Australia head of corporate advisory,
Anthony Sweetman
said.

“One reason we are more optimistic for 2014 is an increase in contested transactions, which wasn’t really the case for most of the past three years."

By way of examples he pointed to the tussle over
Equity Trustees
, the three-way bidding war for
Warrnambool Cheese and Butter
and
Fairfax Media
’s sale process for Stayz.com.

One M&A trend that UBS expects to continue is the use of demergers.

“This year has been quite a busy one, with
Brambles
and
Amcor
, while part of the
Westfield
restructure is similar to a demerger," Mr Sweetman said.

“Demergers are well received by investors and there are a number of big Australian companies that might benefit from the increased focus they can provide."